From Ricardo Pero, CEO of SellersFi

Many of us have heard the statistic that half of all small and medium enterprises (SMEs) fail within the first five years of business. The number one reason they don’t grow more sustainably? According to the Small Business Association’s resource partner SCORE, eight in 10 small businesses go bust due to problems with cash flow. While some of this may also be due to lack of product market fit, marketing issues and other factors, it is simply tough for a majority of SMEs to secure working capital in the amount and with the speed that growing businesses need. That eight out of 10 figure is just within the U.S. For sellers in other countries, selling into the U.S., the equation gets even dicier. 

This is where there is opportunity both for banks and marketplace platforms to build their own businesses by helping SMEs flourish. Up against margin pressures, corporate banks increasingly see the revenue potential from SME lending that they historically shrugged off. Marketplaces are keen to understand that providing lending services draws in and retains sellers by streamlining working capital and financial services needs in one place. In fact, the total addressable market for SME lending globally is $200B.

So starting with the banks, how might they start lending to merchants outside the U.S. who are selling into the country? What’s the ‘recipe’ they might adopt to access new markets and make their capital available to niche, yet immense industries such as e-commerce, for example? 

The ability to lend to foreign SMEs would generally require banks to invest untold time and money trying to understand the ins and outs of a different culture, and tangling with foreign regulators. U.S. banks already have their own challenges to cover and support domestic SMEs. To bypass all that potential friction, the answer is to partner with tech companies. As a bank, you find a partner, already equipped to lend to foreign SMEs, give them funds and let them run with their area of expertise whether consumer lending, small business lending, or specialty finance. It’s an exceedingly more efficient, less risky way to add that global SME customer base. I’m paraphrasing when I note that Jaime Dimon rhetorically asked in the past why buy a bank in a country like Brazil and brand it JP Morgan Chase? Let the local players serve the consumer - in this case - SME market. 

We currently work with asset manager Fasanara Capital, which has extended a credit line to SellersFi. We, in turn, have been able to extend loans to online merchants in the U.S. and abroad. To date, SellersFi’s loan volume has exceded $1 billion, with more than $100 million going to borrowers outside the U.S. 

From the marketplace perspective, it’s the opposite. Unlike banks, which are aiming to expand their lending portfolio to include SMEs outside the U.S., financing is not a marketplace’s core business. In this instance, while a bank’s and a marketplace’s aims are somewhat different, the prescription is the same: let the folks whose core business and expertise is SME lending come in and help them scale. 

Tying back to the reason why most small businesses fail - lack of capital - an EY Global SME survey found that the service SMEs seek most is guaranteed access to faster credit. This encompasses fast approval processes and certainty that funds are available when needed.

At the same time SME customers want a seamless, embedded experience, ideally customized to address their business’ specific needs. In the report, Nigel Moden, EY’s EMEIA Financial Services Banking and Capital Markets Leader points out that, “Digital lending is a key opportunity for competitive differentiation. This is not just about speed of decisioning and fulfillment (the important basics) but also about delivering personalized customer journeys on a scale never seen before.”

With these things in mind, for banks and marketplaces alike, when shopping for an embedded lending partner, that partner should be able to deliver on three counts: 1) Performance as a lender 2) Possessing technology to integrate and scale - an easy plug and play solution 3) A focus on the customer - the ability to provide a fully digital, and ideally, customized, digital financial experience. These three things should be core in any discussion.

By integrating and leveraging a lender already experienced in overseas SME lending, with ready technology and a customer-centric focus as a teammate, banks can grow their loan portfolios and secure a position in specialty finance, while marketplaces can attract and keep merchants on board. All of this ultimately provides merchants, in the U.S. and abroad, the working capital and tools to better run their businesses.